Where I'm Thinking Out Loud about Decentralized Systems, Technology and Business

This week I wrote an essay, examining how the company of the future might look like. After dissecting six trends which I assume are indicative of said future, I eventually arrived at a (rough) outline:

Our company of the future will be rather small as it has a comparably narrow scope. On the other hand, it will be a lot more interconnected with other companies. Every single entity will provide a dedicated value to the system. Together, the companies will form a close, collaborative network that creates value in conjunction. This will be enabled by inter-company APIs who ensure the necessary flow of information and data.

In large parts the company of the future will not consist of traditional employees but of like-minded people working towards a shared purpose. In that regard it will resemble an aggregator (of talent) but with more elements of an actual organization compared to today’s platform-aggregators (e.g. Upwork). Looking at it from the outside, the company might appear more like a loose, fluid group because people join in and leave as need arises. But refined systems, IT and otherwise, will ensure that all contributors are aligned and work in a coordinated manner.

As more people decide to become small-scale entrepreneurs rather than employees, there will be both the need as well as the willingness to create some solidary mechanisms. Thus, smart social contracts (or potentially new forms of shared ownership and surplus distribution) will — at least partially — compensate for the lack of security and stability that was formerly provided by employment contracts.

Now, as I promised in my closing remarks, I want to address some of the challenges involved with such a structure in general and getting there in particular.

Access to funding / financial markets

Being able to fund this type of organization in its early stages and, later, access to financial markets is an obvious challenge. Imagine ten small, specialized companies would want to build a new robot butler in such a structure. While they have all the capabilities of doing so, they lack the necessary funding for upfront investments. Of course they could all set up a joint venture but that would come with some limitations (e.g. complex ownership structure) and the venture would, in case of success, become a monolith in it’s own regard. That’s not a bad thing per se but assume the initial ten companies would prefer to remain independent, small and flexible and cooperate in the way described in the original piece.

Sure enough, it’s rather unlikely the regular early stage capital providers would invest in such a structure. Not only would it appear very risky (at least from today’s perspective), but there wouldn’t even be a proper legal entity (see next point as well). This would have so many downsides – no seat at the board, no clear path to an exit – that it’s hard to imagine VCs or (dare I mention them?) banks investing.

Is there a solution? Maybe. I used DAOs and the blockchain as an indicator for new types of decentralized structures emerging. They might also be the basis for new types of funding vehicles. Even though it might appear unlikely given the recent failure of The DAO, I doubt it’s going to be the last attempt to build a blockchain-based investment thing we see. Discarding the general approach based on this one instance is recency bias in action.

Of course, if this type of funding is the likeliest way to fund companies/constructs of the type I described we have a chicken-and-egg problem. Therein lies a real issue. But none that is insolvable. After all, the internet presented many of them as well. Why would you create an online payment service (and go through all the hassle involved with doing so! #paypal) if nobody is willing to pay online anyway? Why try to sell music online when everybody downloads it for free? And so on. Eventually, they were solved (though, interestingly, almost never by incumbents).

So, coming back to our case, the question only time will answer is: Is there enough interest and expected upside in creating those new solutions? My guess is yes.

Every centralized company based on a network has to overcome the chicken-and-egg problem regarding customer acquisition… The decentralized blockchain model circumvents this problem by incentivizing early adopters, who are rewarded if the network grows, not just the central company that owns it. Imagine if the first Uber drivers and riders had gotten a stake in the network.

The right legal entity

Bluntly: There is no (proper) legal construct for the typology of organization I described. This is an issue that many proponents of the decentralization community (as I broadly summarize it) have to deal with and are aware of. Though the question is definitely not limited to the causa blockchain, its probably the field where most of the discussion around the issue is currently happening.

Another question that arises: Are the coders of today the lawyers of the future? How do these new technologies fit into existing legal structures? National and international law already have a problem coping with the the classic internet, not speaking of the next generation internet that is completely serverless. What do we need to do to create adequate legal structures for decentralized/distributed organizations, on chain as well as off chain? And how can we merge smart contracts with legal contracts?

While some people are of the opinion that no legal structure is required (since ‘code is law’), I object. The argument is basically the same one I made in the Management & Governance section of the original piece. Also, Bloomberg’s Matt Levine, in a very read-worthy piece, put it nicely:

Companies are weird bundles of contractual relationships that have become stereotyped and calcified over time, and re-imagining those relationships for a new and more technology-enabled age is a good project. But companies aren’t just networks of contracts; they aren’t pure agreements negotiated freely between willing participants and no one else. They are also structures that are embedded in society, with rights and responsibilities that are regulated by background rules as well as by contracts. The blockchain-y reinvention of everything in the financial world — money, contracts, companies — is fascinating and impressive and, viewed from a certain angle, adorable. But sometimes it could stand to learn from what has gone before. After all, the elements of finance — money, contracts, companies — have already been invented. Perhaps their historical development might hold some lessons for their re-inventors.

In the same piece, Levine also makes the point that we (kind of) have a legal structure for DAOs, namely partnerships. There are also other models like co-operatives and the newer models of platform co-operatives which are somewhat in-line with such structures. However, none is ideal for the same reason Richard Howlett has some beef with smart contracts:

As there is currently no international internet law, the original contract would have to set out the jurisdictions of the parties and which country’s law the contract is reliant upon.

While you can certainly find workarounds to apply current law, those remain workarounds and are not tailored to our case. I, for one, certainly won’t solve this problem. However, I assume there will be a more appropriate legal framework in the long-run. Alas, the run might be quite long because it is almost impossible to find national solutions to an international problem. In the meantime, workarounds might have to do, giving an advantage to whatever jurisdiction is the most progressive.

A social contract for the future

I addressed the topic of social security in the final paragraph I quoted at the top. But let me elaborate a bit. As I argued in here, I assume that in the process of establishing more elements of decentralized organizations, traditional companies will play a role:

If companies continue to rely on a growing number of gig-workers, they’ll have an interest in creating a better experience for them. This will most certainly include some mechanisms that offer increased stability to contractors.

However, that’s only one side of the story and tackles the short-term problem. My original argument was that the ease-of-self-employment offered by gig economy platforms and the internet in general leads to more people choosing that option in the first place. In combination with the other trends I depicted, I concluded that the entire concept of acompany will change.

In that scenario, the large number of self-employed people will have a self-interest to create some measures to counteract the increased volatility that comes with entrepreneurship. The models to do so already exist. Simply look at the way how partnerships – a structure common in professional service firms – handle their surplus distribution. In broad terms: Every partner pays parts of his/her earnings into a pot that is later distributed among all partners (another percentage is kept to invest in the business). Decentralized companies will most certainly create such systems because it’s good for every participant long-term. These systems are enabled by the internet’s capability to aggregate and will likely rely on some form of smart contracts and distributed trustless consensus technology.

Last but not least: social and welfare systems will also change and adapt to such a world. Be it via UBI or other measures. This will also contribute to a reasonable amount of stability.

That being said: Don’t assume everything’s going to be rosy for everyone. It’s reasonable to expect the emergence of new solutions. That is not the equivalent of cockaigne. I’m not dismissive of the general idea that we might be approaching a world of abundance but it is certainly a first-world perspective, at least for the time-being. Until we figure out a global way for fairer wealth-distribution (which, by the way, the type of company we are talking about here might contribute to), some amount of competition will prevail. As long as the amount of cooperation increases, we are heading in the right direction.

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About

My name is Thomas Euler. This blog is my public notebook. I mostly write about technology, decentralized systems and business. You can learn more about me on my website. My more polished writting is on Medium.